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of <h1>Tribunal allows appeals with recalculations, upholds disallowances related to depreciation, subsidy, and expenses</h1> <h3>Shri Mukesh Kumar Jain Prop. M/s. Sunil Industries Versus The ITO, Tonk</h3> Shri Mukesh Kumar Jain Prop. M/s. Sunil Industries Versus The ITO, Tonk - TMI Issues Involved:1. Delay in filing appeals.2. Application of Section 145(3) and gross profit addition.3. Disallowance under Section 40A(2)(b) for excess interest payment.4. Disallowance of depreciation on subsidy account.5. Disallowance of various expenses.6. Charging of interest under Sections 123A(3), 234B, and 234D.Detailed Analysis:1. Delay in Filing Appeals:The appeals were filed with a delay of 32 days. The assessees explained the delay was due to the impugned orders being mistakenly left at an employee's house. The Tribunal found the reasons to be sufficient and not malafide, thus condoned the delay in the interest of justice.2. Application of Section 145(3) and Gross Profit Addition:The assessees' gross profit rate for the year was lower than the previous year, and the yield from production was also lower. The AO noted defects in the books of account, such as the lack of separate stock registers and production registers for different qualities of seeds, and the absence of month-wise consumption records for fuel and power. Due to these defects, the AO applied Section 145(3) and made a gross profit addition. The CIT(A) confirmed this action. The Tribunal upheld the rejection of the books of account but directed the AO to adopt the average gross profit rate of earlier years instead of the highest rate.3. Disallowance under Section 40A(2)(b) for Excess Interest Payment:The AO disallowed interest payments to related parties as excessive, comparing them to the prevailing bank rates. The CIT(A) confirmed this disallowance. The Tribunal held that bank rates are not comparable due to the lack of guarantee and security in loans from related parties. It directed the AO to apply an interest rate of 18%, considering it reasonable for loans without security.4. Disallowance of Depreciation on Subsidy Account:The AO disallowed depreciation on the subsidy received for plant and machinery, which was confirmed by the CIT(A). The Tribunal found a clear nexus between the subsidy and the investment in plant and machinery, thus upheld the disallowance, aligning with the principles that subsidy reduces the cost of the asset.5. Disallowance of Various Expenses:The AO made a 10% disallowance on factory expenses, telephone expenses, and vehicle depreciation due to personal use and lack of proper records. The CIT(A) confirmed these disallowances. The Tribunal found the disallowances justified due to the absence of proper records and potential personal use, thus upheld the CIT(A)'s decision.6. Charging of Interest under Sections 123A(3), 234B, and 234D:The Tribunal did not provide a detailed discussion on this issue as it was not pressed by the assessee during the hearing.Conclusion:The appeals were partly allowed, with specific directions for recalculating the gross profit rate and interest disallowance. The Tribunal upheld the disallowances related to depreciation on subsidy and various expenses due to the lack of proper records and potential personal use.
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